Across the United States, home prices are surging. In order to keep pace with home inflation, the Federal Housing Administration is increasing the FHA loan limits for 2022. These new FHA 2022 loan limits will give borrowers access to a wider range of homes and achieve the goal of homeownership.
What are the new FHA loan limits and what are FHA loan requirements? Here at Hero Home Programs, we offer an in-depth look at FHA loans, the new limits, and how you can qualify for an FHA loan.
What is an FHA loan?
An FHA loan is a home mortgage loan insured by the Federal Housing Administration. While the FHA insures these loans, they are underwritten and administered by third-party mortgage lenders and are often the loan choice for many first-time homebuyers as they have lower requirements than many conventional loans.
How do FHA loan limits work?
FHA loan limits are the maximum amount that the FHA will insure for the purchase of a property. The idea behind FHA loans is that the FHA guarantees the lender that the balance of the loan is covered if the borrower defaults. This government guarantee makes banks more willing to make mortgage loans to those that may not otherwise qualify for a conventional loan. FHA loans often accept lower credit scores and down payments to qualify, making them ideal for low- to moderate-income and first-time homebuyers. For this reason, the FHA sets a limit on the amount they are willing to insure, thus creating the FHA loan limits. This amount limits the amount of home price you can choose from.
What is the most you can borrow with an FHA loan?
The FHA establishes the loan limits every year based on the median home prices throughout the country. However, there are some considerations regarding the actual FHA loan limit in the area you are looking for a home and the type of property you are looking to buy.
1. Single-Family (One-Unit)
In 2022, the baseline limit for an FHA loan for a single-family home was set at $420,680. However, as we mentioned above, this amount can actually go much higher, depending on the location you are looking to purchase in. For example, in some high-cost areas, where the median home price is much higher, such as in California, the FHA limit increases to $970,800. In areas of Alaska, Guam, Hawaii, or the U.S. Virgin Islands, these limits can go as high as $1,456,200.
Suppose you are looking to purchase a multifamily property. In that case, the FHA loan limit again depends on locations but also depends on the number of units in the property you are considering. For example, a 2-unit property limit begins at $538,650 but can go up to $1,243,050 for properties in high-cost areas. These limits increase with the number of units, with a 4-unit property ranging between $809,150 to $1,867,275.
How FHA loan limits are set
The U.S. Department of Housing and Urban Development (HUD) looks at conforming loan limits throughout the country and uses these figures to determine FHA loan limits for every area. The lowest limit, known as the “floor,” is 65% of the national conforming loan limit. In 2022, this amount is $420,800. The highest limit, known as the “ceiling,” increases by 150% and only applies to areas where the median home prices are much higher.
FHA loan requirements
To qualify for an FHA loan, there are requirements that you much meet as a borrower. These include:
- Credit Score: Borrowers must have a minimum credit score of 500 with a 10% down payment. Borrowers with a 580+ credit score may qualify with a down payment of as little as 3.5%.
- Residence: The property you are purchasing must be your primary residence.
- Property Standards: To back an FHA loan, the FHA requires that a property meet its building standards.
- Debt-to-Income Ratio (DTI): Your DTI cannot be above 43% and your mortgage payment cannot account for more than 31% of your total monthly income.
To learn more about FHA loan eligibility, read “Am I Eligible for FHA Loan?”